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Transfer Pricing

Domestic transfer pricing

Introduction

domestic

Applicability of Transfer Pricing (“TP”) provisions was earlier limited to International Transactions only. With effect from April 1, 2013, the scope of Transfer Pricing provisions extended to “Specified Domestic Transactions (“SDT”).

With the applicability of transfer pricing provisions on Specified Domestic Transactions, it is the obligation on the taxpayer to report / document and substantiates the arm’s length nature of such transaction.

Transfer pricing regulations were extended to include transactions entered into with domestic parties or by an undertaking with other undertakings of the same entity for the purpose of section 40A, Chapter VI-A and section 10AA. All the compliance requirements relating to transfer pricing documentation, including accountant’s report, etc. equally apply to specified domestic transactions as they do for international transactions amongst associated enterprises. However, with a view to reduce the compliance burden, the scope of applicability of domestic transfer pricing has been relaxed by excluding the reporting of expenditure in section 40A under the ambit of SDT provisions.This amendment will take effect from April 1, 2017 and accordingly apply in relation to AY 2017-18 and onwards.

Objective of domestic transfer pricing

Prior to the introduction of domestic transfer pricing, tax officers were empowered to re-compute tax holiday eligible profit if undertaking makes more than ordinary profits as a result of arrangements with closely connected persons or otherwise. In case of inter-unit transfer of goods or services, tax officer/ taxpayer allowed to determine tax holiday profits based on FMV of goods/ services. Thus, no specific methodology was prescribed for disallowance/ tax holiday profit adjustment and it was important to consider making TP provisions applicable to aforesaid transactions.

There are two counts where tax arbitrage happen in India viz. tax holidays and accumulated losses. The objective of introducing the domestic transfer pricing provisions in India is to deal with the tax arbitrage possibilities in India arising out of differential taxes and accumulated losses of loss making concerns.

Statutory rules and regulations

A separate code on transfer pricing under Sections 92 to 92F of the Indian Income TaxAct, 1961 (“the Act”) covers intra-group specified domestic transactions.

The Indian Transfer Pricing Code prescribes that income arising from specified domestic transactions should be computed having regard to the arm’s length price. It has been clarified that any allowance for an expenditure or interest or allocation of any cost or expense arising from a specified domestic transaction also shall be determined having regard to the arm’s-length price. The Act defines the term specified domestic transactions, related parties and arm’s length price.

Type of transactions covered

Finance Act 2012 extended the application of Indian transfer pricing regulations tospecified domestic transactions, being the following transactions with certain related domestic parties, if the aggregate value of such transactions exceeds 20crores:

  • Any transaction referred to in section 80A;
  • Any transaction related to businesses eligible for profit-linked tax incentives, for example, infrastructure facilities (Section 80-IA) and SEZ units (Section 10AA) and
  • Any other transactions as may be specified.

Thus, SDT provisions are applicable only if one of the domestic Indian entities involved in the inter-company transaction is enjoying benefits of any tax holiday / profit linked deduction and the aggregate of such transactions exceed INR 20crores.

Eligible business covered

Section Tax payers covered Deduction
10AA Persons with income from SEZ units 100% for the first 5 years50% for the next 5 years50% of the profits or amount credited to SEZ re-investment reserve, whichever is less for next 5 years
80-IA Infrastructure developers 100% for a period of 10/15 years out of 15/20 years, as the case maybe from the date of commencement of operation
80-IA Telecommunication service providers 100% for a period of 5 years30% for the next 5 yearsout of 15 years from the date of commencement of operations
80-IA Developers of Industrial park 100% for a period of 10 years out of 15 years from the date of commencement of operations
80-IA Producers or distributors of power 100% for a period of 10 years out of 15 years from the date of commencement of operations
80-IAB Developers of SEZ 100% for a period of 10 years out of 15 years from the date of commencement of operations
80-IB Small scale industry engaged in operating cold storage plant 30% of profits for the first 10 years
80-IB Industrial undertaking in Industriallybackward state as mentioned in VIIISchedule
(ex: Jammu and Kashmir)
100% of profits for 5 years and 30% for the next 5 years
80-IB Multiplex theaters and convention centre 50% for the first 5 years
80-IB Company carrying on scientific researchand development 100% of profits for first 10 years
80-IB Eligible housing projects 100% of profits from such business
80-IB Eligible hospitals 100% of profits for first 5 years
80-IC/ 80-IE Persons with units in North-eastern states claiming deduction 100% for a period of first 10 years
80-ID Hotels located in districts having World Heritage site 100% of profits for first 5 years of commencement of business

 

Documentation requirements

As per section 92D, every person who has entered into SDT shall keep and maintain such information and documents in respect thereof, as prescribed in Rule 10D of the Income Tax Rules. As per Section 92E, the assessee has to take an accountant’s report, in Form 3CEB, duly signed and verified as per the provisions of the Act. The Transfer Pricing Audit Report is required to file electronically on or before the due date of filing of Income Tax Return i.e. on or before November 30 of the respective assessment year.

Penal provisions

If any person fails to keep and maintain any such information and document as required by section 92D, the Assessing Officer or Commissioner (Appeals) may direct that such person shall pay, by way of penalty, a sum equal to 2% of the value of each SDT entered into by such person.

Further, failure to furnish a report from an accountant (Form 3CEB) as required by section 92Eby the due date shall attract a penalty of INR 100,000. However, in case of a transfer pricing adjustment, in absence of good faith and due diligence by the taxpayer in applying the provisions and maintaining adequate documentation, tax authorities in India can levy a penalty of 100% – 300% of tax on the adjusted amount.

 

For a more detailed discussion of specific transfer pricing rules, or to obtain further assistance in domestic transfer pricing compliance, transfer pricing study, planning activities,addressing and resolving intercompany transfer pricing issues, please contact AJSH & Co LLP. If you have any query regarding this Click Here.

highlights of 25th gst meeting

Highlights of 25th GST council meeting

The 25th GST Council Meeting was held at New Delhi on the 18th of January 2018. In addition to relaxation of GST rules and regulations, GST rates have also be reduced for various goods and services. Here are the outcomes of this meeting:

Outcomes

  • GST council cut rates on 29 products and 53 services. These new rates will be implemented from 25th January 2018.
  • Council members also discuss on E-way Bill. E-way bill system will go through a test from January 25 and will be implemented on a mandatory basis from Feb 1.
  • No discussion on Petroleum & Real-estate
  • GSTR 3B return filing will continue for the time being
  • Total collection under composition scheme is only Rs.307 Crore

Penalty for Late Filing GST Return Reduced to Rs.50 – Rs.20 for NIL Return

The penalty for late filing of GST returns has been further reduced by the 25th GST Council Meeting. Now, any business that failed to file GSTR1 return, GSTR5 return or GSTR5A return will only have to pay a penalty of Rs.50 per day of default. In case of failure to file NIL GST return, the penalty has been reduced to just Rs.20 per day. The reduction in penalty for late filing GST returns will reduce the compliance and penalty burden on many small and medium businesses across the country.

Cancellation of GST Registration

  • Taxable persons who have obtained voluntary registration will now be permitted to apply for cancellation of registration even before the expiry of one year from the effective date of registration.
  • For migrated taxpayers, the last date for filing FORM GST REG-29 for cancellation of registration is being extended by further three months till 31st March, 2018.

E-Way Bills Can Be Out

During the last GST council meeting in December, it was announced to implement e-way bills from February 1. So, this time we can expect the council to discuss the mechanism of the e-way bill to implement it in a better manner from the next month.

If you have any query regarding this Click Here

POA-blog-image

Power of attorney

What Is Power Of Attorney?

A Power of Attorney is a legal document by which one person gives the right to perform or powers of transacting in matters relating to property, banking, legal and judicial proceedings, tax payments, etc, to another person due to certain reasons like being out of country, or getting old, or not able to look after one’s duties in those matters etc.

Principal/Grantor/Donor- The person who grants the power to the other person to act on his behalf is termed the grantor or principal or donor.

Attorney/Agent/Donee- The person to whom the power is granted is termed the Attorney or agent or donee.

Types Of Power Of Attorney

General Power Of Attorney- A person can give to another person a complete general right or power to act lawfully with respect to his property  or bank accounts or tax payments, or registration work or to sue a third party etc. It is commonly termed as GPA.

Special Power Of Attorney

A Special power of Attorney is to be made by a person when any particular or specific task or act is to be done. Once the particular act is completed the Special power of Attorney comes to an end.This is generally used when you want to rent out your property or appear for the registration of any property or appear in a court on behalf of the Principal or to appear before the Tax authorities etc.

Durable and Non-durable Power of Attorney

IF the Principal wants the Power of Attorney deed to continue even after his death then he has to mention it in the Power of Attorney deed. Such a Power of Attorney is termed as Durable Power of Attorney. If there is no mention that the power shall continue after the death of the Principal then it is a non-durable Power of Attorney deed.

Power Of Attorney By Non-Resident Indians (NRI)

An NRI or non-resident Indian can make a Power of Attorney deed even by staying outside India without having to come to India for that purpose. Most NRIs have properties and banking transactions in India which may require their presence while transactions happen.But it is often not possible to come to India for each such transactions. For this then NRIs can always give the powers to transact to another person who is either a family member or a friend.

Property matters POA need to registered  at sub registrar  office.

We serve a number of clients who need assistance for various legal, financial and tax matters who have benefitted from our professional services. Find out more on how we can help your business by speaking to one of our advisors at AJSH & Co LLP. If you have any query regarding this Click Here.